china

When it comes to enforcing US court judgments in China, the law has been clear and remains clear. China won’t do it. Not now. Not later. Maybe not ever.

We are always writing on how because Chinese courts will not enforce US court judgments it is usually pointless to pursue litigation against a Chinese company in the United States if the Chinese company’s only assets are in China. So if you have an agreement with a Chinese company that requires litigation take place in a US city, you are likely to face problems if you ever need to sue. Here are some of our posts on this:

So today when a lawyer from a Middle East country emailed me to discuss enforcing a large judgment from that (intentionally unnamed) country in China, I had to figure out whether China enforces that country’s judgments or not (it doesn’t). In doing that research, I came across this very helpful chart put out by the Practical Law Company, listing what countries enforce what foreign judgments. This chart does not list the enforcement rules for every country, but it does list it for the following 32 and I am guessing that will cover at least 90 percent of the searches out there: Argentina, Australia, Brazil, British Virgin Islands, Canada, Cayman Islands, China, Cyprus, Egypt, France, Germany, Hong Kong, Hungary, India, Indonesia, Ireland, Italy, Japan, Lithuania, Luxembourg, Luxembourg, Malta, Mexico, Romania, Russian Federation, Singapore, South Africa, Sweden, Turkey, USA, United Arab Emirates, and United Kingdom.

So next time you find yourself wondering whether a particular country will enforce another country’s court judgment, I urge you to check out this chart.

Since 2009, the Gallup polling firm has surveyed people in 150 countries and territories on, among other things, their daily emotional experience. Their survey asks five questions, meant to gauge whether the respondent felt significant positive or negative emotions the day prior to the survey. The more times that people answer “yes” to questions such as “Did you smile or laugh a lot yesterday?”, the more emotional they’re deemed to be.

Gallup has tallied up the average “yes” responses from respondents in almost every country on Earth. The results, which I’ve mapped out above, are as fascinating as they are indecipherable. The color-coded key in the map indicates the average percentage of people who answered “yes.” Dark purple countries are the most emotional, yellow the least.

China scores right in the middle, which probably seems about right to me, assuming the survey accurately measures emotions and assuming that the emotions it measures are the same ones I am thinking about. People in China do sometimes smile — certainly more than in Russia but less than in the United States. People in China sometimes scream and yell and fight — certainly more than in Singapore, but less than in Korea. But of course people smile and scream and yell and fight everywhere, so I don’t know….

I admit to a bit of fascination with the viral Korean pop video, Gangnam Style. My fascination stems from the following:

It has nearly 400 million views on YouTube. Some kind of record.

I have been going to Gangnam 4-8 times a year for at least 15 years. It’s the wealthiest and trendiest part of Seoul and of Korea, but there really isn’t a lot of there there and that is what I see as the theme of the song/video.

I am a huge fan of Korea and whenever people talk of the China miracle, I start talking about the Korea miracle. Korea was the second poorest country in the world in the 1950s and it is now a wealthy developed country. In addition to its economic miracle, it also has become a full-fledged democracy. I can remember ten years ago walking through parts of Busan or Seoul that had open sewers. No more. I was in Busan a few months ago and what struck me was how everyone seemed to be at least middle class. Korea deserves credit for having “made it.”

I think a video like Gangnam Style almost has to come from a country that has made it and has confidence in itself. I can remember ten years ago having only one Korean friend who I felt was truly honest about Korea — both its good and its bad. My other Korean friends were overly protective of their country, refusing to admit it had any real faults. That sort of protection is disappearing and I see that as a good thing.

But what about China? I just read a really good piece by Evan Osnos, a top-notch China journalist for New Yorker, on how China is just not capable of producing a video like Gangnam Style. Not because China doesn’t have tens of thousands of very creative people, but because it is just not there yet in terms of being able to poke fun at itself. The article is called “Why China Lacks Gangnam Style” and I recommend that you check it out. Whether you agree or not, it certainly makes for an interesting read.

But do you agree? Is Osnos right that China could not produce such a video, or is he selling China short?

This post is by Matthew Dresden, one of our China attorneys. Matthew is fluent in Chinese and also conversant in Thai. Before attending law school, Matthew spent eight years in Hollywood, as an independent filmmaker and as a production executive for Roger Corman’s Concorde-New Horizons Pictures. Matthew now mixes his China law knowledge and his film background to assist Mathew Alderson in representing foreign companies involved in China’s film industry.

On Wednesday last week, The Los Angeles Times had a fascinating article about the latest skirmish in Hollywood’s quest to dominate the Chinese film market, entitled, “Warner, China Film clash on ‘Dark Knight’ debut against ‘Spider-Man.'” China Film Group, the state-owned entity that determines movie release dates in China, has scheduled both Warner Brothers’ “The Dark Knight Rises” and Sony Pictures’ “The Amazing Spider-Man” to open on August 30. As this likely will significantly diminish both films’ box office take in China, the studios are understandably frustrated (to put it mildly).

But if Warner Bros. and Sony didn’t see this coming then they haven’t been paying attention. American movies have been killing it at the Chinese box office this year, taking in nearly 2/3 of all box office revenue through June and accounting for 9 of the year’s top 10 films. Meanwhile, the Chinese government has mandated that Chinese films have at least a 55% share of the 2012 Chinese box office. Something had to be done to take away some of Hollywood’s market share. Sure, it’s market manipulation, but it’s not even the most egregious example in China this week: the State Administration of Radio, Film, and Television (SARFT), which controls the China Film Group, just lifted a four-week blackout on new, non-Chinese releases, with more blackouts to come in October and December. And don’t forget the annual quota of 34 (or might it just stay at 20?) non-Chinese films eligible for box-office revenue sharing. Meanwhile, China Film Group is being sued in a Chinese court for allegedly having tampered with box office results — but that’s another story, and another kind of protectionism.

In a happy coincidence, the Beverly Hills Bar Association’s Entertainment Law section put on a presentation on Wednesday entitled “Breaking Into China Without Going Broke.” It was a wonderful topic and the panelists were top-notch, but I would have liked to have heard a little more realism about the Chinese film business. China may be adding six new screens every day and the box office may be up 41% this year, but how much that has translated into increased profits for American companies?

When our firm is engaged to work on a film project in China, we typically focus one key issue. If the project makes money, what can we do to increase the odds of our foreign (usually Australian, European or American) client getting paid? All too often, Hollywood companies going into China overly fixate on intellectual property issues, when they also need to be concerned about simply getting paid.

After the event, I was speaking with Mathew Alderson (who heads up my firm’s China entertainment law practice), and he echoed a point made by the panelists: proper due diligence and structuring of deals with Chinese partners can be the most important factors in whether film companies get paid. Mathew’s advice is even more relevant in the context of the China Film Group’s power play, which underscores the desirability of Chinese co-productions (a co-production counts as Chinese content and is not subject to the 34-film quota).

That said, there’s an ongoing debate in China as to whether the co-production regime should be used to decrease Hollywood’s numeric dominance in the Chinese box office or, as per Chinese government guidelines, to propagate Chinese culture abroad. When Dan was in Shanghai during the Shanghai Film Festival earlier this month, he wrote of how, not surprisingly, this was the talk there as well:

Many people are worried about how well foreign movies are doing in China. The thinking is that China’s government is not going to keep letting foreign movies blow away Chinese movies at the box office and eventually may restrict foreign movies even more.

The takeaway here is not that film companies should avoid China, but rather that they shouldn’t expect to do business the same way they always do. China’s legal system is different and so are the motivations of the participants and the regulators. For foreign companies that don’t understand that, it’s going to be a long, strange, and unprofitable trip.

I can’t help thinking back to my first job in Hollywood, as the assistant to Roger Corman. Roger, who received a richly deserved Oscar for lifetime achievement in 2010, has long been known as a savvy filmmaker and businessman who made money on almost every film project he took on. One reason for this is his uncanny eye for talent, and another is that he would much rather take a guaranteed payment upfront than an uncertain payment on the back end. I cannot help but think that film companies should consider taking the same approach when dealing with China.

Renaud Anjoran at the always on the money Quality Inspection Tips Blog has a post, entitled, “The 10 components of a good quality assurance strategy in China,” that very nicely lays out what it takes to get good product from China. The post breaks out the ten components of effective China product sourcing into the following four “themes”:

Qualification of new suppliers

Purchasing method

Quality control

Buyer-supplier relationship

Renaud calls for buyers to do the following (my comments are in italics):

Conduct a background check on your potential supplier. Make sure they really are the factory, and not just an intermediary entity. Agreed

Audit your factory. Agreed.

Make sure the factory is the right fit for you, particularly in terms of size. Agreed.

Define very clearly what you want from your Chinese factory and make sure that the factory understands what you want. Agreed.

Regularly perform quality control inspections, as appropriate. Agreed. A good Manufacturing Agreement is important, but it is not sufficient.

Stay with the same supplier as long as the relationship is good, rather than abandoning them to save a few pennies somewhere else. Completely agree.

Visit your factory on occasion to meet with their people face to face. Agreed. I am convinced that those factories that “know” their buyers and have real relationships with them are much less likely to provide them with bad product.

In my previous post, Aussiewood Film Finance And China Co-Productions. Ever The Twain Shall Meet? I explained how a cash rebate equivalent to 40% of feature film production costs is available from the Australian government for films with “significant Australian content” if the producer incurred “qualifying Australian production expenditure” when making the film. This rebate is known as the “Australian producer offset.” In this post, I explain how “official” co-productions between Australia and China, and between Australia and certain other nations, are exempt from some of these requirements, making it easier to access this offset.

But first, what is an “official” co-production? For purposes of the Australian producer offset, an official co-production is one made under formal arrangements between Australia and the governments of various countries. These formal arrangements are treaties or memoranda of understanding. Australia has a co-production treaty with China and also with other countries, including Singapore, Canada and Germany. Note that Hong Kong is not considered part of China for treaty purposes, so a China-Hong Kong-Australia co-production does not qualify as an “official” co-production.

For purposes of the Australian producer offset, the main advantage of an official Chinese co-production is that it does not need to have “significant Australian content.” To qualify for the offset, it is only necessary for the producer to have incurred “qualifying Australian production expenditure” when producing the film. Another advantage is that it is not necessary for the Australian production company to be the only production company. Still, the film needs to comply with Screen Australia’s “International Co-Production Program Guidelines.” The guidelines are subject to modification under various formal arrangements, but here are some of the basic elements:

The film may be based on an underlying work (such as a novel) from any country.

The screenplay for the film must be attributed to a writer who is a national or permanent resident of one of the co-production countries, but a non-credited writer can come from a country without a formal arrangement with Australia.

Generally, cast and crew must still come from an “official” co-production country, though one or a small number may come from other countries, particularly when required by the script or by financiers. Generally, credited roles which are not creative or technical roles and are not part of the making of the film, such as executive producers and assistants, need not be from the co-producing countries.

The film must be made in an “official’ co-production country, though there are exceptions when filming is required on location in other countries.

The proportion of the production budget raised by the Australian co-producer must be reasonably similar to the proportion of the budget spent on the Australian elements.

The Australian producer’s financial contribution must be reasonably proportional to the Australian creative contribution and the Australian producer’s financial contribution must be reasonably proportional to the spend on Australian elements.

The bottom line is that the Australian producer offset is an attractive investment incentive for co-productions between China and Australia and between Australia and the other nations with which Australia has made formal co-production arrangements.

A Chinese court is mediating talks between Apple Inc. (AAPL) and Proview Technology (Shenzhen) Co. in a bid to get the companies to settle their dispute over the iPad trademark in the country.

“On the one hand, we are trying to process this case, and on the other, we are working on encouraging both sides to settle,” Zhao Le, an official at the foreign affairs office of the Higher People’s Court of Guangdong, said by telephone yesterday. Zhao said he had no further information on the effort.

On Feb. 29, the Guangdong court heard Apple’s appeal against a lower court ruling last year that Proview owned the iPad trademark in China. Proview, a failed maker of computer displays, has filed separate complaints alleging that Apple’s sale of iPad tablets in the country infringed intellectual- property laws.

“We started work, through the mediation of the court, on trying to get both sides to settle,” Roger Xie, a lawyer for Proview, said by phone. Before issuing rulings, Chinese courts typically initiate proceedings for litigants to settle, he said.

None of this is any surprise. We have helped oversee about a dozen Chinese litigation matters and all but one of those was fairly routine. The one that was not fairly routine was “sticky,” in that the law was clear but the law also would require the court to issue a ruling that it clearly would not want to issue. The Apple-Proview case is what I would describe as a highly sticky case in that the law seems to favor Proview, but a ruling for Proview does not favor China. The court should rule one way, but it really does not want to do so.

When I say the law seems to favor Proview, please understand that I am basing this strictly on media reports and that there is a very real possibility I have it all wrong. But to put it simplistically, it seems that Proview tricked Apple into believing that Apple had purchased the iPad name in China from Proview when, in fact, under Chinese law, Apple had not. I am going to ask you to go with me on this and just assume that the law/facts favor Proview.

Because the politics and the economics certainly do not.

If Proview defeats Apple in their various Chinese lawsuits, the end result will almost certainly be that Proview will end up owning the iPad name in China. That would not be a good thing for China. The world would freak out even more about China’s IP protections and at least some foreign companies would cite this case to justify not going into China, not selling their product into China, not working with Chinese companies, and even not buying from China. None of this would be good for China.

The second way in which a Proview court victory would hurt China is that it would probably lead to Apple moving its iPad manufacturing (or at least some large parts of it) out of China. If Proview is deemed to own the iPad name in China, Apple will not be able to use the iPad name at all in China unless it pays to license that use from Proview. If the Chinese courts hold that Proview owns the iPad name in China, I do not believe Apple will pay Proview even one Yuan for the licensing rights to that name because doing so would set such bad precedent for Apple. A holding that Proview owns the iPad name would also mean Apple would not sell iPads (and other Apple products?) in China again. Note that Apple has yet to release its newest iPad in China. How do you think the lose of iPad related jobs will play among China’s masses? How do you think the loss of the iPad at retail will play among China’s elites? I am quite certain the Chinese government is thinking about these things.

So what can the Chinese government do? A lot.

Back to the “sticky” case we had in China. Every China case we had before that sticky case either settled or was ruled on shockingly quickly. But our sticky case just languished. Six months at a time would go by with nothing. Then when our Chinese lawyers would ask the court what was happening on our case, the court would tell them that we needed to settle. The other side was being told the same thing. Between the lower court and the appellate court, this went on for more than three years. The courts eventually did rule, but of course our case had nowhere near the significance of the Apple-Proview one.

So what is going to happen in the Apple-Proview case? It has to settle. It just has to. There are certain cases where not settling could be so horrible for one or more sides that settlement has to happen. Picture two people fighting at the edge of a cliff. There are times where both parties go off the cliff, but that becomes less likely when you have a powerful and self-interested third party moderating.
The Chinese government is that third party in the Apple-Proview case and you should just assume that the courts are taking their direction straight from Beijing’s highest echelons.

The problem with my firm’s sticky case was that both sides knew that a compromise court ruling was extremely unlikely; either one side or the other would win big. We were representing a foreign plaintiff and the amount at stake was large enough so that any settlement might prove devastating to the defendant. This mad settlement all the more difficult.

Since Apple has One Hundred Billion Dollars cash on hand it can easily afford to pay to resolve the Proview case. It just not want to do so, and certainly not in a way that will make it appear to be admitting defeat. The Chinese government is going to need to come up with a face-saving solution for Apple that will involve Apple maybe indirectly paying off Proview while receiving some sort of major bone from the Chinese government. Something that will give Proview money and yet still allow Apple to claim an overall victory.

By now just about everyone has a rough outline on the goings on surrounding Bo Xilai, Chonqing’s former power boss. To grossly summarize:

Xilai and his wife were very powerful.

Businesses (including foreign businesses) were taken by Bo Xilai and his wife’s power and sought to ally with them.

A British businessman, Neil Heywood, who did at one time ally with them is dead and Bo Xilai and/or his wife may have had some connection with his death.

Bo Xilai has been removed from power.

Believe it or not, the above makes for a great learning experience.

The first lesson is that you should not think that allying yourself with the very powerful in China is necessarily such a great thing. Of course it can be, but it also can be a double-edged sword, as we discussed extensively in “You Want China Guanxi? You Can’t Handle China Guanxi“:

Having grown up in a small Midwestern city, I have an inherent (and what I see as a healthy) distrust of government. Every government. Anywhere.

I was yet again reminded why when I read this excellent Wall Street Journal article on British Petroleum’s recent problems in Russia, entitled, “Misreading the Kremlin Costs BP Control in Russia Venture.” BP thought its getting close with key Kremlin players would protect them in Russia. Most unfortunately, for BP, however, when its key Kremlin players fell out of favor, it too fell out of favor. Russia can be particularly problematic, but other countries certainly are not immune. I have seen up close and personal how allying with government can be like playing with fire:

Many years ago, I was working with an American company who was on the verge of getting a huge supply contract with the Korean navy. The son of the President was setting up the deal. I knew the deal was in the trash when I saw the son on the US evening news getting into a Korean police car in handcuffs.

Many years ago, my law firm had a very close relationship with a Russian vice-governor. His beloved daughter was one of our paralegals and, lo and behold, company after company from this Russian province would contact my firm for international law assistance. This work dried up rather quickly when the father was axed to death.

Many years ago, we had a client who ran a business on Chinese military bases. The whole practice was of questionable legality, but his closeness to a high ranking military official seemed to isolate the enterprise. Then the high ranking official retired and within less than a year, our client was off all the bases and a new company was there in its place.

We had a Russian company as a very good client, the owner of which decided he wanted to be Governor of his province. He ran and lost, in a fairly close election. Within a year, his various companies had become greatly diminished because of constant government investigations that appeared to have been done to keep our guy in his place and to teach him not to run for office again.

Government people come and go and when “your” people are gone, much or all that you have worked for goes with them. This is NOT a reason not to ally your company with government, but it sure is a reason to remain wary.

The second lesson is that you should not underestimate the potential for your business relations to turn violent. We have written extensively on this over the years and just about whenever we do, someone accuses us of being alarmist. We are being alarmist, but for good reason. We also sometimes get accused of trying to scare people to drum up more legal business. That accusation is absurd because as far as I know, telling people to beware of their life and limbs in China is not a terribly good way to score more China legal business.

Though China is relatively safe, one should absolutely not write off the possibility of violence in one’s business dealings in China. My law firm has been called in at least a half dozen times where violence was either threatened or occurred. We tell our clients that if they owe money to a Chinese company or are involved in any sort of dispute with anyone in China (partner, employee, etc.), they should avoid meeting to discuss the dispute/problem anywhere other than in a neutral, very public place in the day time. A high end hotel lobby in Shanghai or Beijing is a good choice.

We wrote the above about a year ago and if I were to write it today, I would say that the number of times where we have been involved in matters with violence or threatened violence is up to a dozen. A few weeks ago, I was talking with a friend of mine who works in China for a leading international risk management/security/hostage negotiation company. I was telling him that we had been seeing a big increase in Chinese companies making veiled (and not so veiled) threats against our clients over alleged debts. This friend then told me that his company was getting three business hostage takings a month, up from about one a month in the last few years. I then sought to clarify what he meant by “hostage takings” and he said that did not even include the situation where a large group of people menacingly hang out at your business; he was talking about only those situations where someone was being held against their will under threat of violence.

I am not saying that China is a violent country and I do not think it is. But it is still a developing country with an inchoate legal system. What this means is that frustrated people are a lot more likely to “take things into their own hands” than in most Western countries. What this means for you is what I said above: at minimum, if you are in any sort of dispute with a businessperson in China, do not go to that person’s turf to try to resolve it.

And for those who think I am being too alarmist, I end this post with two emails I received this week, to show that at least I am not the only one:

As you know, Bo Xilai was removed from the Politburo today. His wife is being investigated for the murder of Neil Heywood. While it seems to be a plot from a thriller novel, the Chinese themselves admit to the investigation. See the official Xinhua report below. However, I want to point out that Heywood was apparently murdered as the result of a financial dispute with the Bo Xilai group. Often in my discussions with clients, I advise extreme caution when dealing after financial disputes have arisen. Some people accuse me of being overly cautious. The Heywood event shows why I am concerned. When money is involved, the rule of law doesn’t seem to matter much and too many Chinese businesspeople deal with it using gangster techniques. If Gu Kailai was willing to commit murder, think about what a local person would do, particularly when desperate.

I am seeing violent incidents like this [Bo Xilai] increasing, not decreasing. The money in business in China just keeps rising and the more money involved, the greater the chance for violence. There is a lot of talk about the poor economy and I think that is helping to increase violence. Ten years ago, the Chinese were afraid to beat up a Laowai but that has changed.

Hans Rosling: Let my Dataset Change Your Mindset. The widely held view that Western countries have small families and long life spans, while developing countries like China have large families and short lifespans has not been true for about 50 years. Rosling “busts” these myths with data. He also shows that the idea that economic progress leads to social and health development is wrong too, by showing how China applied education, vaccines, and family planning to create economic development, not the other way around.

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About China Law Blog

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.